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Nigeria Monetary Policy January 2021

Nigeria: Central Bank stays put in January

At its first meeting of the new year on 25–26 January, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria unanimously decided to leave the monetary policy rate unchanged at 11.50%. Moreover, the MPC left the asymmetric corridor at plus 100 and minus 700 basis points around the monetary policy rate, the cash reserve ratio at 27.50%, and the liquidity ratio at 30.0%.

In deliberating the decision, the MPC noted the economy was stuck in stagflation, with simultaneously intensifying inflationary pressures and contracting economic output. As such, there was merit for both tightening and loosening its stance. However, as a change in the stance could worsen price pressures and further weaken the currency, or limit economic activity, the MPC opted to hold its fire. Regarding the domestic economy, the Committee noted that activity faced headwinds in the final quarter of last year amid a resurgence in Covid-19 cases, currency weakness and greater production costs. That said, the MPC noted an improvement in output at the beginning of this year and expects the outlook for the domestic economy to improve over the medium term. It also projects inflationary pressures to ease.

The Bank struck a relatively neutral tone in its press release, leaving the door open to both a rate cut and hike. The decision to stand pat, however, allows for a continued wait-and-see approach as the effects of previous cuts become more visible.

The next monetary policy meeting is scheduled for 22–33 March.

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